Four Types of Software Founders

The SBA agency states that 30% of new businesses fail during the first two years of being open, 50% during the first five years, and 66% during the first 10. And only 25% make it to 15 years or more.

With venture-backed tech startups situation is similar. More than 75 percent of them fail.

Why is that? (It’s a Story Time)

Let me start with four quick tech startups success stories.

Try to guess what startup I’m talking about before I reveal it at the end of each story.

Story #1

These guys started a small web development agency back in 1999 and did an excellent job for their clients.

But this didn’t feel satisfying anymore, and they decided to find their way to building and selling their software products.

They made a smart move and sold a 70-pages eCommerce related report at first.

After they got an audience, experimented with marketing, they built their first product. A project management system for small businesses and teams. They did it all while still serving web design clients.

These days this project management software has over 3 million paid accounts. It’s all bootstrapped, and they never looked for VC funds.

These guys also authored a bunch of bestselling books for developers and business owners.

Do you already know whom I’m talking about?

These guys are Jason Fried and David Heinemeier Hansson and their main product – Basecamp.

Story #2

These two brothers from Ireland built their first software being school kids and successfully bootstrapped it to sell in a couple of years for 5 million bucks.

In a few more years, they dropped out of college to start a new venture. They didn’t want to bootstrap it at that time even though they had money, time, and also excellent engineering skills.

Instead, they got a huge vision to disrupt the online payments industry. They set up to play big from day one.

With the previous track record, they quickly got seed funding. In couple more years, they closed series A funding.

It all started in 2010, and even this fall, they got one more 100 million funding round closed. And they keep raising more and more money.

They add a new product to their ladder every 2-3 months. They invest and acquire other startups actively.

They are now valued at $35 billion.

They’re an ideal sample of a unicorn software startup.

So who are these guys?

These brothers are John and Patrick Collison, and their company is Stripe LLC.

Story #3

This guy completed his undergraduate studies in 2002 with a BSEE from Duke University and was living a great life working as a programmer in a bunch of startups.

But in 2006, his ambitions went up, and he started working on his own FinTech consumer software to disrupt banking space.

He had savings only to live off for a bit more than a year and nobody to help him.

So he closed himself in his room for 14 hours/day and 7 days/week and finished the alpha version in about nine months.

In the fall of 2006, he was lucky to get seed funding, and the rest is history.

Three years later, this SaaS got 10 million paying users and was acquired by Intuit.

This guy is Aaron Patzer, and his SaaS was Mint.com, a personal finance management app. He sold it and is now busy with other things.

Story #4

During his professional career, he worked as a marketing analyst, social media manager, and product manager. But side hustles have always been a part of his life since childhood.

On November 6, 2013, as one of the last of such hustles, he began a simple email newsletter between friends sharing the latest tech products and apps they stumbled across. To his surprise, the subscribers base grew pretty fast.

And when it became evident that people like and need it, this founder brought a programmer (his friend) to build a website and moved all the community from the mailing list there.

This was the point when the side project turned into a full-time position.

In just over five years, that email list that started as a side project has become the wildly popular spot for the tech community.

This startup is ProductHunt, and the founder is Ryan Hoover.

How are these stories different?

Okay. Enough stories. How many of these stories did you guess? 🙂

Now, before getting deeper into those four success stories and try to analyze their circumstances, let’s define the rules.

These are five criteria I’ll use to describe every founder type and success story:

Goals. What are the founder’s goals to start the software in the first place? E.g., grow and sell it, or keep it for longterm as a new income stream.

Priorities. Based on the goals, the founder(s) will prioritize differently. E.g., focus on scale & growth, or go lean & profit faster.

Team. Who builds the business and the software part? Possible options are: do everything on your own, hire in-house employees, find technical co-founder, or, finally, outsource it (freelancers or agency).

4. Employee (Story #4: ProductHunt)

The last founder category is very similar to the Programmer, with the only difference – lack of programming skills.

This is the person with a dream to start her own business. She’s doing this for the first time w/o much prior business or tech-related experience, and this founder got no technical skills to build software.

This person burns night oil and also spends all weekends working on a new idea.

Employee doesn’t have the luxury to do multiple tries with different software ideas as Programmer does. Employee type needs to pay for the development hours.

Costs of starting a tech product are much higher for Employee than for Programmer. The initial investment for the MVP version is crucial in this scenario.

This kind of founder needs to acquire both: high-level technical skills and business skills.

Goals. It could be both: big huge startup or just a small bootstrapped venture to pay the bills and get rid of the boss.

Priorities. Go lean and on a budget.

Team. Usually hires agency (or freelancer) or partners with a technical co-founder.

Funds. Own savings, friends/family borrows, part of monthly salary.

Involvement. Part-time. Evenings and weekends.

Who got more luck?

I’m pretty sure there are more tech founder types, but these four are the most common that we met among our agency clients since 2011.

We worked with all four types of founders, and there are success stories with founders coming from all four categories.

My first three software products I started when I was in the Programmer category. But then, few fresh ideas I started being an agency owner (Biz Owner type).

Trying new startup ideas from the Biz Owner perspective was way more relaxed. I had a bit more time as my team was serving clients, and I had a bit more cash to invest in building and marketing new ideas.

My partner Ethan also came from Real Estate space being part of the Biz Owner category.

And you know what?

Our preferred category of clients are people coming from the Biz Owner category.

The Biz Owner category success ratio is the highest.

These people are okay with playing small at first and know what it takes to build a new income stream. Be it technology or just a local store.

They got the mindset, the money, a bit of time and usually start building anything only after they understand the audience and their pains.

They usually start on the market side.

They have enough monthly cash flow to fund a new idea for the long run until they figure out how to sell it. They got the mindset and can sustain hard times.

On the other side, Programmer and Employee type of founders…

They need to learn and figure out a lot of customer and marketing stuff. And, of course, the hardest part is a mindset shift.

It’s much harder to turn 9-6 employee into an entrepreneur than help serial entrepreneur step into software business for the first time and create one more income stream 😉

What about Startuppers?

Less than 25% of VC funded startups fail.

And you know what? – Most of the popular software products are actually bootstrapped (or got professional money at later stages).

Startuppers need to satisfy both investors and customers. Evidently, investors are put first.